Non-Manufacturing Activity Strengthens In February - March 5, 2013

The non-manufacturing sector, which accounts for some two-thirds of aggregate economic output in this country, representing as it does the services sector, gained additional traction last month, according to a release made this morning by the Institute for Supply Management (ISM), a Tempe, Arizona-based trade group.

Specifically, the ISM reported that such activity had come in with a reading of 56.0 in February. That comfortably exceeded the 50.0 dividing line between an expanding services sector and one that is contracting. It also topped January's reading of 55.2 and the consensus expectation of 55.0. Impressively, this was the 38th month in a row in which the services sector had shown an increase in activity.

Moreover, this report follows the companion ISM issuance on the manufacturing sector. That gauge of activity came out last Friday and showed a reading of 54.2, which likewise had topped expectations. Unlike the manufacturing arena, which had slumped late last year, non-manufacturing, as noted, has been in an expansion of more than three years.

Meanwhile, in addition to the composite score of 56.0, we saw solid improvement in most individual components, notably business activity and production, which rose from 56.4 to 56.9. Also, new orders, a very critical category, jumped from January's 54.4 score to last month's 58.2 reading. The pace of activity also quickened sharply in inventory accumulation, prices, exports, and backlogs. On the other hand, although employment had another strong performance, the rate of increase actually ebbed ever so slightly, coming in with a reading of 57.2 last month, versus a result of 57.5 in January.

Further, most respondents were rather upbeat in their assessment. For example, in management and suppprt services, comments were made to the effect that business seemed to be improving. Finance and insurance, meantime, saw a continuing slight uptrend in activity. What's more, the heretofore struggling real estate sector chimed in with comments that the construction market is showing some positive signs.

Taken as a whole, this was a very encouraging report, and suggests that there is likely to be a notable rebound in overall business strength in the fast-concluding first quarter. In fact, following the flattish final stanza of 2012, when revised GDP came in with a negligible growth rate of 0.1%, the current three months could see growth that is upwards of 2%.